Tax-Efficient Strategies for Retirees Living in Claremont, CA

Keep More of What You’ve Earned in a High-Cost Area

Retiring in Claremont, California, offers a rewarding lifestyle—walkable neighborhoods, cultural amenities, and strong community ties. But enjoying retirement here also comes with financial challenges. With California’s relatively high income taxes and Claremont’s cost of living, retirees need to think carefully about how to structure withdrawals, investments, and gifts in a tax-efficient way.

The good news? Strategic planning can help you stretch your savings further, reduce tax drag, and preserve your wealth for the years ahead. Here are some strategies tailored for retirees in Claremont.

1. Optimize Your Withdrawal Sequence

The order in which you draw from your accounts can significantly affect your tax bill. Many retirees find the following strategy helpful—consider talking with a financial advisor to help make sure it’s the right one for you:

• Taxable Accounts First: Brokerage accounts often allow you to sell investments taxed at long-term capital gains rates, which may be lower than ordinary income tax rates.

• Tax-Deferred Accounts Next: Withdrawals from IRAs, 403(b)s, or 401(k)s are taxed as ordinary income. Managing the timing can help prevent pushing yourself into higher brackets.

• Roth Accounts Last: Roth IRAs grow tax-free and have no required minimum distributions (RMDs). Preserving these accounts for last helps maximize their long-term tax-free growth potential.

General Rule of Thumb: Spend taxable → tax-deferred → Roth. This sequence won’t fit every situation, but for many retirees in high-cost, high-tax states like California, it can help minimize lifetime taxes.

2. Plan Ahead for RMDs

Beginning at age 73, the IRS requires you to take minimum distributions from tax-deferred retirement accounts. These withdrawals can:

• Push you into a higher tax bracket

• Increase the taxable portion of your Social Security benefits

• Trigger higher Medicare premiums (IRMAA surcharges)

Strategy: If you retire before RMD age, consider partial Roth conversions during lower-income years. This lets you pay taxes now at lower rates and reduce the size of future RMDs. In high-cost areas like Claremont, smoothing your tax liability year-to-year can help preserve your retirement income.

3. Take Advantage of California’s Social Security Exemption

Here’s one bright spot: California does not tax Social Security benefits. While these benefits may be taxable at the federal level depending on your income, they’re exempt from California state income tax.

Tip: Coordinate your Social Security claiming strategy with your withdrawal plan. For some retirees, delaying Social Security increases lifetime income, while using taxable or IRA withdrawals early can help manage taxes efficiently.

4. Use Charitable Giving to Reduce Taxes

Many Claremont residents are active in supporting local causes and institutions like the Claremont Colleges. If philanthropy is part of your plan, you can give in ways that also reduce your taxes:

• Qualified Charitable Distributions (QCDs): If you’re 70½ or older, you can give directly from your IRA to a qualified charity. Qualified charitable distributions count toward your RMD and are not included in your taxable income.

• Appreciated Stock: Giving stock instead of cash avoids capital gains tax and provides a charitable deduction if you itemize.

• Donor-Advised Funds (DAFs): These accounts can allow you to contribute in high-income years, claim an immediate tax deduction, and distribute gifts to charities over time.

Charitable giving isn’t just good for the community—it can also reduce your tax burden in retirement.

5. Review Housing and Property Tax Options

For many retirees in Claremont, the home is both the largest asset and the largest expense. Consider:

• Proposition 19 Portability: Seniors can transfer their property tax base to a new home in California, potentially saving thousands if you downsize or relocate.

• Estate Planning with a Trust: In California, high property values make probate costly. A living trust helps your heirs avoid expensive probate fees and creates a smoother transfer of assets.

• Downsizing: Moving to a smaller or lower-maintenance home can free up equity for retirement income while reducing property taxes and upkeep.

Why Tax Efficiency Matters in Claremont

Living in a high-cost, high-tax area makes every dollar of retirement income count. By structuring withdrawals, managing RMDs, leveraging charitable strategies, and making smart housing decisions, you can reduce taxes and extend the life of your portfolio.

At Evermont Wealth, we specialize in helping Claremont residents approaching or in retirement align their financial plan with their lifestyle goals. As a fee-only fiduciary Registered Investment Advisor (RIA), we don’t sell products or take commissions—we provide guidance tailored to your best interests. Schedule a free consultation today.

This material was written in collaboration with artificial intelligence (ChatGPT) derived from sources believed to be accurate. This information should not be construed as investment, tax, or legal advice.